Marcel Kahan and Edward Rock examine the perilous position of Delaware law

For two decades, Marcel Kahan and Edward Rock have been frequent collaborators in exploring issues in corporate control, shareholder rights, and corporate governance. Most of the time, that involves focusing their attention on Delaware law. The state’s well-developed case law and experienced courts have helped make it the legal home for more than 2 million corporations, including more than two-thirds of the Fortune 500.

Now, however, Delaware’s status as the nation’s leader in corporate law may be at risk, Rock and Kahan write in their latest paper, “The New Political Economy of Delaware Corporate Lawmaking,” which appeared in the Journal of Corporation Law in June. In an interview, Kahan, George T. Lowy Professor of Law, and Rock, Martin Lipton Professor of Law, spoke about what they see as a breakdown in Delaware’s lawmaking process. Among the reasons for the shift, they say, are growing competition in the legal market and increased concentration of power in the hands of controlling shareholders.

How did Delaware become the de facto national promulgator of corporate law? 

Marcel Kahan: The traditional story is that New Jersey was the leader. But then they passed some anti-corporate laws in the waning days of Woodrow Wilson’s tenure as governor of New Jersey, when he was already running for president on a more progressive platform. This caused companies to move from New Jersey to Delaware. 

But the more sophisticated story is that Delaware has corporate law statutes that are very, very attentive to corporate needs. It has a very efficient administrative apparatus for incorporation. And it has, I believe, the highest quality state courts in the country. So if you want to litigate in state court, you want to litigate in Delaware. 

Ed Rock: Delaware got to this position because of historical accident, but they’ve done a terrific job at it. And the quality of what they’ve done has meant that no one else has had much of an appetite—not the federal government, not other states—to engage in any sort of serious competition. 

What prompted you to write this paper? 

Rock: We had both been following activity in Delaware in 2024 and 2025. What happened in those years struck us as something very different from what we had been following since the beginning of our careers. 

Kahan: Twenty years ago, we had written an article explaining our theory of why Delaware corporate lawmaking functions in this peculiar manner: where the legislature has very, very little involvement; where statutes are drafted by the Delaware State Bar Association, but mostly address technical, non-controversial issues; and where issues where people really differ on an appropriate policy are hashed out in the court system. 

What happened then, in the last two years, is that suddenly the legislature became much more active and became much more proactive on controversial issues. So we went back and said, “Well, what explains this sudden shift?”

Could you walk us through the change in the lawmaking process? How did it come about?

Rock: The immediate cause was three opinions from the Delaware Chancery Court that transactional lawyers found problematic. There’s an annual bench-bar conference in New Orleans hosted by Tulane Law called the Tulane Corporate Law Institute, and at that conference, there were criticisms of these opinions. Pressure was brought to bear from the venture capital world and the private equity world. And there were people who said, “We’d better change these quickly. We can’t wait for the normal process of appeal and so forth, because we’re afraid that companies will leave Delaware.”

But I think the deeper cause is that transactional lawyers have become accustomed to create whatever governance structure they want through their agreements and their contracts. From a contract lawyer’s perspective, a decision that calls into doubt the ability of transactional lawyers to do things the way they’ve been doing them—especially when there’s no obvious injured third party, and no obvious injured counterparty—seems illegitimate and problematic because it creates “uncertainty” as to whether their agreements are valid.

In 2024, the normal drafting body for the statute, which is known as the Corporation Law Council, swung into action in response to the concerns raised at Tulane, and very quickly drafted amendments to the statute to reverse the three opinions that people complained about. Their proposed amendments were then pushed through the legislature on an accelerated basis, with minimal deliberation. 

In 2025, the Corporation Law Council was more or less circumvented. After Elon Musk lost his compensation case in the Delaware Chancery Court and started rage-tweeting on X, Meta indicated it was thinking about leaving Delaware for a different jurisdiction. At that point, the new governor convened an ad hoc committee to consider amending the Delaware General Corporation Law. 

Within two weeks, a complete redrafting of section 144 was completed. It changed the rules governing related-party transactions by directors and officers. It added a whole set of provisions governing transactions in which a controller is interested. It was then directly introduced into the legislature. The Corporation Law Council was given a chance to comment, but not to make any substantive changes. And then the bill was rushed through the legislature on an accelerated basis. 

That was a complete transformation of the process. 

So you decided to look into what was driving this shift. What did you find? 

Rock: Our conclusion was there were two principal factors. First, we think it was driven by the fact that there are many, many more corporations with controlling shareholders now than there ever before. This is because of the spread of dual-class capital structures in which the founder has high voting stock and the outside shareholders have low voting stock. So you can control a corporation with more than 50 percent of the votes but still only, say, 10 percent of the equity. 

The second factor is changes in the legal market. Lawyers in Delaware are much less able and much less willing to resist the demands of out-of-state clients and the out-of-state law firms that send lots of work to Delaware. This is because there are many more lawyers, many more firms, bigger firms, and much more movement among firms. In the old days, it was plausible to think that the Delaware lawyers in the Corporation Law Council could leave client interests at the door when they went into the meeting room and put on their “Delaware hat.”  Now, we argue, lawyers—not just in Delaware, but that’s where it’s having an effect—lawyers everywhere are more concerned about their personal brand than they are about their firm or about the law as a whole, because of the incredible movement now among law firms. 

Kahan: The incorporation business is a very, very key industry for Delaware. It generates huge fiscal revenues, huge tax revenues for the state. And so from Delaware’s perspective, the danger was that if some corporations leave, it could have a snowballing effect. The governor and others felt they had to stop the momentum. But the response has a downside in that it creates a potential long-term cost because it is very bad for the perception of Delaware. It undermines Delaware’s long-term legitimacy—because it is peculiar that a small state like that makes the laws that are the de facto corporate law in the United States. 

In your paper, you talk a bit about the competition from other states and also from potential federal corporate law. What would be the impact of those kinds of changes? 

Kahan: Well, if the federal government got involved, the big danger is that the law will become more volatile and more politicized. The only interests that Delaware really cares about are the board of directors’ interests and shareholder interests. In federal lawmaking, there will be a lot more people who will have a seat at the table. It’s hard to say who will be the winners or who will be the losers, and probably the mere fact that there are more people at the table means that shareholders and managers will be the losers because they’ll have to share their interests with others. 

It sounds as though federal corporate law would at least introduce a lot of uncertainty. 

Kahan: I think most corporate lawyers would be aghast at the possibility of a federalization of corporate law. And so are the two of us. 

Rock: We are genuinely concerned that recent developments undermine Delaware’s role. The question is whether Delaware’s reign is coming to an end because of that, and whether there’s anything that can be done to prevent that from happening.

Tell us about the solution you proposed, a type of new corporate law commission. 

Rock: It’s basically a proposal to make[the process for amending Delaware law more regular and less weird. The idea that the executive committee of the Corporation Law Section of the Delaware State Bar Association—this private body that has no statutory authority whatsoever—is the place where amendments to the statutes are drafted, which are then rubber-stamped by the legislature, is a holdover from another period. It worked for a variety of complicated institutional reasons that we mapped in 2005. But as soon as the general public finds out about this, they’ll likely say, “What? The lawyers who represent the largest corporations write the rules that govern those corporations, and those managers’ relationship with their shareholders? Really? That’s how it’s done?”

Our idea is that formalizing the commission will help respond to that critique. We propose that the body responsible for drafting amendments to the corporation law be given a statutory basis that requires it to have a more diverse group of participants and that will reduce the influence that out-of-state corporate clients will have on the process. To accomplish this, we propose limiting the number of active lawyers, increasing the number of retired lawyers—who have expertise and are more likely to have Delaware’s interests in mind—and mandating a process that would provide greater transparency in the consideration and development of the amendments.  This approach, we believe, will channel the amendments back to where they used to be—fixing technical problems—and away from confronting big issues of public policy.

What’s next?

Rock: For me the most significant finding in the paper is that these dual-class controllers have discovered their power. They’ve discovered that they can threaten Delaware and that Delaware will respond. The only question is what else they will demand going forward.

Silicon Valley companies would very much like to require arbitration of shareholder disputes, which would allow them to eliminate class actions. Delaware, up to now, has said no. Mandatory arbitration would be very bad for Delaware because litigation is the lifeblood of the development of Delaware corporate law, and also the lifeblood of the practices of many Delaware lawyers. I don’t think it’s in Delaware’s interest or in Delaware lawyers’ interest, but if Silicon Valley demands this, it will be the next major issue for Delaware. It is also the subject of our next article. 

This interview has been condensed and edited.